Hi guys, thought I'd post it here, I'm keen on getting an NRAS investment property and wanted to know the con's from a savvy perspective … the pro's seem quite solid, I just can't help but think that I'm missing something …
NRAS Scheme
Lweezlebub on 10/04/2013 - 13:31
Comments
Google NRAS and NAB to read a couple of articles about NRAS.
Mosh
Hi Spal,
A family can earn over 100k and still rent an NRAS property and they can have their income increase by 25% and stay in the property. I don't think that matches the generalisation about NRAS tenants in your post.
Even a single person can earn 45k and rent an NRAS property and plenty of good people earn that or less.
The bottom line is that there are plenty of quality NRAS tenants out there, you have a say in who rents the property anyway just like a non NRAS property.
Cheers
I too was very serious about this a while back and had contacted by few property brokers (so called investment advisor's) as well. After going through many properties through many parties I couldn't find a single property which has fairly priced.
They all say what you are going to get in next 10 years and cash in 50% of what you gonna get in next 10 years. That means if the property is 50k more expensive than average property of that size and place, you are not going to make anything special in 10 years compared to a non NRAS property. Because you have to pay compound interest on the extra money you pay upfront to acquire the property. Almost all the properties I went through were highly inflated in price.
Unless you have black money to covert I don't see any point spending hardly earned salary on these properties.
yes same as other government scheme (1st home buyer, free stamp duty, etc) money from government ends up at the agent's pocket because all the middle man between us and government tries to take as much as they can.
but hopefully in this slow property market, price can be little bit lower.
me too, need to do more research…..some consortium are better than other (note consortium is not brokers, but much higher party that received the deal from government), in term of putting fees and marketing cost into end buyer.
" If you are after cash flow positive property then it should not be a major concern for you."
so, can i assume all (or most) NRAS property will be positively geared? rental guarantee for how many years?
Pay 20% deposit and all the costs, and then from day one i will make extra income?Right, so my research to date, using the example of an Adelaide apartment complex:
225,000$ for a studio apartment (dog-box) with rental estimate of 270-300$ / week (NRAS eligable)
Westpac group, 2 year interest only loan @ 4.99% ~ 930$ / month or 216$ / wk
Rental income = 270 - 20% = 216$ / wk (adjusted annualy for CPI)Purchase time: 1st homebuyers grant, new property grant
Income neutral, minus management fee of 10% & strata fee of 280$ (per quarter i suspect), land lord insurance = losing 50$ / week …
Tax time
9820$ lump sum, tax free payment from NRAS (guaranteed for 10 years)
11232$ interest only payments are tax deduction (who likes tax returns?!)
<unknown> depreciation of property tax deduction (who wants all of their tax money back?)
If you get one interstate, you can claim two visits per year to inspect your property on tax …you're looking at a 50$ / week loss with a massive windfall each tax time & the 50$ / week diminishing each year as CPI rises and that's assuming you get the lower end of the rental spectrum … If you get somewhere with more rent or cheaper outlay, then you can end up cash neutral from the onset …
Contitions: earn minimum 70k / year & have at least 100k in cash / equity
Hey, I know you are not promoting that Adelaide apartment but what a terrible investment that would make. Everyone has to remember that no matter what the figures are that the property needs to be a good one with or without the NRAS allocation.
You can't get the first homebuyers grant on an NRAS property.
You don't need a 100k of equity or cash to buy a 225k property you need about 65k.
Someone on 65k a year can buy an NRAS property and pay no tax for 10 years, believe it or not but it is true! The new payment will Be $10,400.
The property will cost you nothing from your pocket and will be bought for you by the tenant and the tax department, with a bit of money from the state government. But you get most of the money when you do your tax so the property will be quite negative (you have to pay each month) for the first year then after that you can use a tax variation to get your tax breaks as you get paid instead of waiting. Unless you are self employed.
There are lots of very bad NRAS properties for sale and lots of people trying to take advantage of you if you are looking at buying one. For instance search NRAS in Google and see how many companies call use NRAS in their company name and domain name, then look at their sites and see how they are not clear that they are not NRAS but try and make you think they are.
I don't want to write a book here so if you have any NRAS questions post them and I will answer them.
the comment by mskeggs does not make sense because by the time the NRAS allocation has finished the property will have substantial capital growth and 10 years of rental increases, so for most NRAS properties they will be positive cash flow after the scheme ends.
Some (I emphasise some)NRAS properties are positive cash flow $50,000 in the first 10 years so if the property is negative for a couple of years after the scheme finishes do you really care?
As the original post most NRAS properties look like dog boxes. How come they appreciate in 10 years then. To me their build quality was also not so convincing. The other thing is that you don't find NRAS properties in good areas. At least in Melbourne, I saw most of those NRAS located in bad places. And very small in sizes. So you can't really compare the value of those units with normal ones. Then the price is inflated by 40k-60k than a normal property in the same place and size.
These negatives do not let you think about extra 100k you gonna get in next 10 years.
The other thing is that in Melbourne rental properties don't become positive in short period as the price is too high compared to return. In Adelaide it's easy to find 5% return in a year. But not in Melbourne.
I wouldn't consider it unless it was cash flow positive from the outset, as after the NRAS period your income will fall substantially.
Will you get the 1st home buyer grant?
You should be able to get a depreciation schedule if this is a new build.
You can claim any reasonable number of visits to the property for inspection, maintenance etc.After the NRAS period has finished, you would have had 10 years of rental CPI increases & be able to put the rent up the 20% to market value …
No, to 1st home buyers grant
Yes, to depreciation schedule
Has anyone here bought or know anyone with an NRAS property? there seems to be many talking about it but never someone that has one. I understand all the benefits on paper and it does seem like a great investment alternative to the 'norm' but there are still many sceptical people against it as its for lower income people and its a 'scheme' and has that word in the name of it.
go to NAB.com.au and put NRAS in the search box.
Mosh
Hi rmamila,
Not sure what you do for a living but I work in the investment property field and unfortunately I see ill-informed comments about NRAS online all the time. Your comments fall in to that category, the main issue I have with your comments is that you are making blanket statements about all NRAS properties.
Let me go over your comments:
As the original post most NRAS properties look like dog boxes.
Not true… you can get 4 bedroom homes and townhouses and 3 bedroom apartments that are NRAS properties
How come they appreciate in 10 years then. Not sure what you mean, the good ones (I never said every NRAS property was a good investment) are normal properties in normal locations and you will never know they are NRAS. The same properties by the same builder will be sold to home owners and investors who don't have NRAS so you will get the same growth as any other similar property in the area.
To me their build quality was also not so convincing.
Really? How many have you inspected yourself? or had a building inspector check out for you? Just like there are bad builders who build normal homes there are bad builders who build NRAS homes, the trick is to know what you are doing and do your research so you don't use one of the bad builders. It has nothing to do with NRAS.
The other thing is that you don't find NRAS properties in good areas. At least in Melbourne.
Really? well that depends on what you call a good area, we have NRAS properties in Essendon, Essendon North Footscray Brunswick, Maribyrnong, Highett, North Melbourne, West Footscray, Dandenong, Pascoe Vale. The people who live in those areas will be surprised you don't think they live in a good area.
, I saw most of those NRAS located in bad places. And very small in sizes. So you can't really compare the value of those units with normal ones.
Not true as I have covered above.
Then the price is inflated by 40k-60k than a normal property in the same place and size.
Really? then don't buy one if that happens.That is another blanket statement that every single NRAS property in the country is being sold for up to 60k more than it is worth.
Just not true.
These negatives do not let you think about extra 100k you gonna get in next 10 years.
The other thing is that in Melbourne rental properties don't become positive in short period as the price is too high compared to return. In Adelaide it's easy to find 5% return in a year. But not in Melbourne.Most NRAS properties in Melbourne are positive cash flow from day 1. Some are positive cash flow over 50k in the first 10 years for an investor earning 65k and the investor will pay no tax for 10 years if they buy the right NRAS property.
Really I don't think you made one decent point about NRAS just misinformed generalisations about a subject you clearly do not understand.
Mosh
I've been away from the site for a while, didn't opt for NRAS, turns out I'm not too bad at renovations, so established made more sense :)
Remember that NRAS property is to be rented out to people from the community who are faced with difficulties in with their life situation. I number of them would not have good references or credit history. As such they fail to source a rental place without assistance. There is always a risk of not knowing how your tenant is going to turn out. Having said that you may find a tenant who is good with their dealings with you have had a fair hand dealt by life. They may have a steady job to pay regular rent, but not enough to buy their own house.
You may also find that NRAS property price may be over valued or it is not in a desirable location. Which means it may yield lower capital gains for you. If you are after cash flow positive property then it should not be a major concern for you.
Like in any investment it is good to do your own research and be aware of the risks. May be speak to some officers in a charitable organisation who are engaged in finding accomodation under NRAS.
I would appreciate if you could share your research here.
Best of luck.